Mutual Fund NEWS Group

Thursday, July 26, 2012

IDBI Mutual Fund launches gold fund

Asset management company (AMC) IDBI Mutual Fund today launched a gold fund targeted mainly at retail investors and people without demat accounts.

The scheme opens for subscription from July 25 and closes on August 8. The investment objective is to generate returns that correspond closely to the returns generated by IDBI Gold Exchange Traded Fund (IDBI Gold ETF) that was launched last October.

Under the scheme, investors would not hold gold physically and the asset management company (AMC) would keep the equivalent amount of imported gold in its vault with Bank of Nova Scotia.

"Gold is a great investment asset. We see investment in gold as a component of prudent diversification to hedge against uncertainties, inflation and for long-term benefits," IDBI AMC Managing Director and Chief Executive Debasish Mallick told reporters here.

On the amount AMC expects to garner from the new scheme, Mallick said, "We are expecting at least Rs 100 crore during the NFO period."

The fund house further said investment in gold provides better inflation-adjusted returns.

"In the last 10 years, gold has beaten the headline inflation 8 out of 10 times. It has outperformed and given positive inflation adjusted returns," he said.

The product will be available across most of IDBI Bank's branches, Federal Bank, Indian Overseas Bank and Corporation Bank, he added.

Source: http://www.indianexpress.com/news/idbi-mutual-fund-launches-gold-fund/978825/

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'I made my money by selling too soon.'

Website: http://indianmutualfund.co.cc/

Blog:http://indianmutualfund.wordpress.com/
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Tuesday, July 24, 2012

Allow AMCs to retain a decent return: Sridhar Chandrasekharan

Q&A with Chief Executive Officer, HSBC Global Asset Management

Mutual fund is a much-talked about financial product currently in India. Despite several measures the industry continues to find it difficult to grow. Sridhar Chandrasekharan, CEO of HSBC Global Asset Management says Indian market is significant in terms of its potential in domestic as well as cross-border business. HSBC AMC has a local presence in several of the markets it invests and India is one of them. In conversation with Chandan Kishore Kant, he shares his views on the challenges Indian fund market faces and what needs to be done to curb it. Edited excerpts:

Is Indian fund management business a challenge?
There has been quite a lot of discussion about the distribution model in India where you have got no front-end loads for retail clients for distributors and on the other hand you have got the same distributors charging the AMCs for the front-end load. And clearly, at arms length, it is fair that AMCs are able to recover the costs of infrastructure they provide which enables them to have research and analytical capabilities. In retail distribution, this is a concern since due to this dynamic, AMCs are in the short-term not able to recover anything to offset these costs. Then I will be concerned if it led to perverse dynamics whereby somehow the level of infrastructure was diminished.

The industry framework should allow the asset manager to retain a decent return, in order to offset the costs of the infrastructure AMCs create. I am confident that the industry will evolve and so there is no way that we will diminish the quality of infrastructure that we have. But it will be useful to recognise that these things do not come out of thin air. It does incur a cost and it will be useful and healthy to see that there is something to support that.

How different is India's asset management industry compared with the world's?
It is at a nascent stage. Stability of the regulatory framework is going to be very important. If we look the developments taking place in the Indian industry, taking the ratio of proportion of investments that are managed within the asset management industry in the developed markets is above 25 per cent whereas in India and in the emerging markets, in general, the equivalent ratio stands below 10 per cent. It means that India is still in that upward journey where people are realising that asset management industry can add value to them. I see the mutual fund industry continue to grow in India and along the way it will look different in terms of conduct of business, revenue and distribution dynamics.

Last year Indian government allowed foreign retail investors to invest in Indian mutual funds. But it has not been successful. What went wrong?
There are discussions relating to tax related developments both domestically and for cross-border investments. I would be concerned more about the uncertainty it creates. Whatever it is that is intended to be the rules, as long as it is transparent and clear then investors can reasonably make a decision. You have a situation now that investors are prepared to hold money at negative interest rates when there are strong attractions over here. And we have to ask ourselves the question

why does that persist?
If we talk about reliability in terms of the rule, it is a significant focus. So the attractiveness of India, in many ways, as a destination is beyond doubt. If that is the observation, all of us need to ask the question 'what is it which is inhibiting investors'? And, based on the feedback that I had in terms of conversation with some of the clients, the uncertainty factor is a result not so much on the underlying risk but the frequently changing rules.

Post crisis, it is difficult to sell MF products in India. What measures should be taken?
The penetration level is low and it is, from our experience of the emerging markets, bound to increase. One of the challenges is in terms of building the trust. There should be more measures to enable investors to access professional managers. Fundamentally, the way I look at this business is by understanding the value that industry adds to investors. By the mutualization of assets you have the scale to deliver. Because of the scale asset managers can more efficiently access the markets. MFs have infrastructure advantage and because of the scale one has a greater investment in the infrastructure around research and analytics. That is the core value addition which industry can provide to the investors and this is true anywhere in the world. Now within that what we need to be conscious of the fiduciary responsibility because at the end of the day people are trusting you to manage their money on their behalf. What that means is to articulate clearly what the investment process is by focusing on what it is we are seeking to do with client's money. And the more successful we are in articulating that, the more successful we will be in terms of building the client's confidence.

Do you feel that somehow Indian fund industry has been unable to generate that trust among investors and that, probably, has played a vital factor in decline of inflows and assets?
Absolutely. There are a variety of factors which go into this perception and hence this industry is not seeing inflows. Transparency is becoming a very key consideration. And it is fair to see when I look back at several of the regulations in India. But trust is something which is earned, you cannot regulate. One can, obviously, put in safeguards but it is a firm which earns the trust of its investors.

The quality or the value which an asset manager adds to an investor is very often described by the industry in terms of "look at my comparative performance" or "look at my quartile performance" etc. If you are discharging a position of trust then I would argue that your primary focus needs to be in terms of managing risk on behalf of your clients and it's a bit strange and unusual for me that the quality of that risk management is then measured in terms of return. There is nothing to be defensive about the performance, what I would say unequivocally is that performance is a consequence of managing risk well and frankly I would rather manage risk on behalf of our clients than necessarily focus uni-dimensionally on beating a peer group because at the end of the day I would be concerned if some of that meant that we were taking undue risk in client portfolio.

What role does your India presence play in overall asset management business?
We have a local presence in several of the markets we invest. And this does make a significance difference. If we take a market like India, our focus is both being relevant to the domestic market and also being able to play a meaningful role in the connection between foreign investors and Indian domestic markets. So the inter-connectivity is something that as an institution we are very strong on and this will continue to grow. In that context, the Indian market is very significant both in terms of the potential it has in the domestic business and also in terms of the cross-border business.

Source: http://business-standard.com/india/news/allow-amcs-to-retaindecent-return-sridhar-chandrasekharan/179747/on

Monday, July 23, 2012

A mutual fund can't beat its benchmark in the short term: Sandesh Kirkire, Kotak Mahindra MF

With an AUM of nearly Rs 26,000 crore, Kotak Mahindra Mutual Fund is the 10th largest fund house in India. Its CEO Sandesh Kirkire tells Babar Zaidi why funds must outperform their benchmarks, why some funds need to be merged and why the NPS has not taken off.

Sebi has expressed concern over the underperformance of some equity schemes and plans to question the fund houses. Has the regulator overstepped its mandate?

I'm not sure what kind of questioning the regulator has in mind, but highlighting this issue is certainly important. The performance of a fund is linked to its benchmark index. As a fund house, it is our responsibility to generate alpha compared with the underlying benchmark over a reasonable period. If you look at the assets under management, not the number of schemes, almost two-thirds of the assets managed by the domestic mutual funds have outperformed their benchmarks. This is a good achievement when one compares it with the developed markets, where a large number of schemes underperform their benchmarks.

A lot of people continue to remain invested in funds even if they underperform for extended periods. How long should one wait before exiting a fund?

One should not expect a fund to outperform its index in the short term. Give a fund manager at least 1-2 years to generate that extra return. That's the minimum time he would require to make a fund perform better than its benchmark. If he is not able to beat the benchmark even after 4-8 quarters, it's time to start asking whether one should continue with the fund or switch to a better performing scheme.

Last year, you had merged the Kotak Lifestyle Fund, which was performing poorly, with the Kotak Select Focus Fund. Should the underperforming funds be merged with schemes that are doing well?

We merged the two because we found that some of the thematic schemes were unable to generate alpha compared with the underlying diversified broader market index. When these thematic schemes were launched, they did very well, but later their performance became volatile, which made investors nervous. So we gave investors the option to exit the fund and merged it with a diversified scheme. Today, most of our funds are diversified.

Kotak Mutual Fund is one of the six fund houses managing the New Pension Scheme (NPS) funds, but it has not managed to attract many investors. How can it become the investment vehicle of choice for retirement planning?

NPS as a product is the finest in the world in terms of cost. Unfortunately, unless financial literacy rises in India, the product will not do well. The NPS needs to have a pull to attract investors the way that the PPF does—investment and interest earned are tax-free.

What was the need to create this complicated structure? Couldn't the fund houses have come up with a similar product?

The big challenge in the pension space is that investors don't know when to change their asset allocation. Mutual funds could have created such products, but asset allocation would have been the investors' decision. Given the low level of financial literacy in the country, the NPS lays down a precise formula, taking into account the age of the investor.

The default option of the scheme continually changes the asset allocation as the investor grows older. By the time you are 60, your total exposure to volatile markets comes down. Besides, in a mutual fund, the distribution cost is the largest component of the total cost structure. A mutual fund will find it difficult to operate a scheme on the cost structure of the NPS.

Talking of costs, there is talk of the entry load on mutual funds making a comeback. How can this impact the industry, the distributors and the investors?

The discussions are under way, so I will not be able to comment on this. The focus is on increasing retail participation in the capital markets and this is best done through mutual funds. So it is not only about the commercials of the industry, but also about the tax incentives that are available. A combination of the two, as well as an improvement in the capital markets, will bring back the retail investor.

Five years ago, in 2007, people were overly enthusiastic to invest in the equity markets. The total net investment in the markets by domestic funds and insurance companies exceeded the FII inflow during 2007-8. Today, even though the markets are 50% cheaper in terms of valuations, the investors are questioning the growth prospects and valuations.

Critics say that corporate investors are the focus of fund houses because they invest far bigger amounts than retail investors. How valid is this charge?

This is a myth. Less than 5% of the mutual fund workforce is involved in institutional selling, which means that 95% of the sales force is focusing on retail investors. Corporate money will continue to come because of the ease of investment in the money markets through mutual funds. Secondly, the revenue potential of the products that corporates invest in is one-tenth of that earned from the products sold to retail investors.

Unlike institutional investors, retail investors typically come with a long-term investment horizon, whether it is in income funds or equity funds. Since these schemes are able to deliver higher returns, the fund house can charge a higher fee from the investor.

Source: http://economictimes.indiatimes.com/opinion/interviews/a-mutual-fund-cant-beat-its-benchmark-in-the-short-term-sandesh-kirkire-kotak-mahindra-mf/articleshow/15078334.cms?curpg=2

Saturday, July 21, 2012

Don't expect markets to retest December lows: Sunil Singhania, Reliance Mutual Fund

In an interview with ET Now, Sunil Singhania, Head Equities, Reliance Mutual Fund, says the composition of the market movement is definitely going to change, but the downside to the market looks limited. Excerpts:

ET Now: Can the market retest December lows?

Sunil Singhania: We definitely do not expect that. At the same time, the whole composition of the market movement is changing. The earlier bellwether stocks are no longer the same. Therefore, the composition of the market movement is definitely going to change, but we definitely believe the downside is going to be limited.

ET Now: Your exposure to pharma has worked for you like a charm. You have 18% exposure to pharma, and out of your top 5 holdings, 3 are pharma names that are at an all-time high. That is an aggressive bet which has worked for you. Are you still bullish on it?

Sunil Singhania: I will give you a perspective of what we did. The consumption story in India has been played out significantly. We felt it was a good story and a good theme, but it was slightly pricy in terms of stock valuations. We felt that pharma had the benefit of the consumption theme domestically, because domestic pharma has been growing at upwards of 15-18% for the last 2-3 years. Also, there was an export story in terms of a massive opening up of the generic markets in the US, Europe and in other countries. The Indian companies were now mature enough to take benefit of that. Further, the currency also helped.

So it has been a combination of being underweight on some sectors, which are similar but which looked a little pricy, and being overweight on pharma, which had similar characteristics, ROE, neat and clean balance sheets and also the added opportunity of the export front. And we are lucky to some extent. We hope the performance continues and at this point of time, we continue to be positive on the pharma sector.

ET Now: So you are in no hurry to reduce your exposure to pharma stocks?

Sunil Singhania: Reduction and addition is a day to day...

ET Now: 1% here, 1% there, that is fair enough, but what about...?

Sunil Singhania: At this point of time, we continue to be positive. Obviously there are some segments of the pharma sector which might face some headwinds because of the government policy of generalisation even on the domestic market. But by and large, the companies are growing significantly well, and the ROEs and the managements are good and even quite comfortable.

ET Now: But your bias is clearly more towards the Indian pharma companies?

Sunil Singhania: Again, it is a mix. In some funds, we have exposure to multinational pharma companies, but at this point in time, the company is obviously in the portfolio, and there are others we have big positive bias on.

ET Now: If I look at the portfolio of Reliance Growth Fund, the only consumption space you are bullish on is liquor. What makes you bullish on liquor stocks?

Sunil Singhania: I do not want to mention particular companies, but if you analyse the cigarette market and the liquor market, both are vices. Cigarettes are actually very injurious to health. Liquor, to some extent, is a social vice, but it is not as harmful to human health, but you see the market cap of the cigarette industry in India and the market cap of the liquor industry in India -- obviously one industry has done well because of one company which is supposed to be a very clean company and rightly so. In the liquor industry, however, the dominant player has been plagued by other non-fundamental problems.

So our call is that the liquor industry has got huge potential in India. It has probably the best consumption theme as far as India is concerned. It is becoming more and more socially acceptable in India. We have a young population who is more prone to accepting social drinking, who drinks socially and responsibly, and the valuations are in favour. So we use this opportunity of non-fundamental problems to build positions there.

ET Now: Your current declared portfolio shows you are bullish on banks, but within the banking space, you pretty much like all the banking businesses. You have exposure to SBI, ICICI Bank and Federal Bank in the PSU, private and small private banks space, respectively. So you are pretty much bullish on the entire banking spectrum?

Sunil Singhania: No. Obviously we understand NPLs and restructured assets are a big problem. Our call has been to move towards larger banks, away from the smaller banks for some time. So the biggest banks in our portfolio are the largest banks and among the smaller banks, we have stuck to banks where we feel that the perceived asset quality is better than the street.

So across funds we have more or less moved towards larger banks vis-a-vis the smaller banks. And at an opportune time, once the environment on the economy clears, we will take a call on whether we need to rejig the portfolio as far as the banking space is concerned.

ET Now: In our previous conversation, you made a case for buying PSU banks. Are you now making a case not to buy PSU banks?

Sunil Singhania: No, we are taking a PSU banking versus private banking stand. Obviously private banks are slightly less prone to NPL problems for the simple reason because they do not have the kind of social obligation as some of the PSU banks have.

But the call is that in this kind of an environment, smaller banks might get hit more if one or two big accounts turn NPLs or turn into restructured assets. So the call is more towards larger banks.

We are not taking a PSU versus private stand because while private banks are good, they are also priced accordingly. PSU banks have some issues, but their valuations have also come down accordingly. But the call from our side is to be in larger banks, which might be able to withstand near-term NPL or restructuring issues slightly more strongly than the smaller banks.

ET Now: Why are you so negative on autos?

Sunil Singhania: I do not think we are negative on autos.

ET Now: You have got 1 or 2 exposure there, no exposure...

Sunil Singhania: No. In fact, in some of our funds, we have a huge exposure to auto. In India, auto is a great story structurally. But auto is also slightly negatively correlated with interest rates. With the interest rate scenario improving now, there is near-term headwinds in terms of auto sales, because of the way the economy is progressing and also because of the perception that monsoon might not be as good.

So the purchase is being shifted, but we will continue to track it closely. In fact, we feel that in future the support auto sector companies, i.e. engineering and auto ancillary companies, would be very interesting to look at.

So we are not negative, but in the near term, there might be months when you have some disappointing sales.

ET Now: Looking at Infosys and TCS, do you think IT or largecap IT stocks could go through a process of de-rating?

Sunil Singhania: TCS is almost at an all-time high barring the past few days, but it clearly reflects that even within this sector, all companies are not going to move together. So there is a huge diversion of performance within the IT segment. So one company is down significantly like 20% year to date, but some of the other companies are up 15-17-20% year to date.

Some of the smaller IT companies have been doing very well, and many of these IT companies are trading at 5 to 7 year highs. The sector is superb. As a country with a huge working population, we have an advantage. The cost pressures are slowly coming under control. All it will take is some revival in the global economy before investors start to look at this sector again.

So we will closely watch this sector, and we do believe that stock specifics even within the sector will be more important.

Source: http://articles.economictimes.indiatimes.com/2012-07-20/news/32748646_1_pharma-sector-pharma-stocks-domestic-pharma/2

Rajiv equity scheme: Funds may flow only to PSUs, large-caps

The tax-saver Rajiv Gandhi Equity Scheme intends to allow investments in Maharatna, Navaratna and Miniratna shares, besides in top 100 shares on the BSE and the NSE. These are part of the draft guidelines approved by the Department of Economic Affairs.

However, the draft guidelines do not mention investments through mutual funds. This is despite the demand from the mutual fund industry, supported by the Securities and Exchange Board of India.

According to an official source, "This draft is now going to SEBI and then the Department of Revenue will notify. Since the scheme involves tax matters, a final notification has to come from the Department of Revenue." The scheme was announced in this year's Budget and is expected to be notified soon.

Approved amendments

According to the amendments approved by Parliament in the Finance Bill, the scheme will allow deduction of 50 per cent of the amount invested in equity shares to the extent that the deduction does not exceed Rs 25,000.

This means one can invest a maximum of Rs 50,000 to get the benefits. The condition is that the benefits will accrue only to first-time investors and will be given once.

On why not investment through mutual funds, the source said since the approved amendments in the Finance Bill talked about investments in listed equity shares, no diversion was possible without further amendments. The amendments have inserted a new Section 80CCG in the Income Tax Act.

The approved amendments also talk about a three-year lock-in period for investments under the scheme.

However, the draft guidelines propose churning of investments after the first year, but any point of time during the three-year period.

But, the minimum investment should be maintained at Rs 50,000.

Security & Liquidity

The source also added that investment in listed top scrips, besides Maharatna, Navaratna and Miniratna, will give not just give security but also liquidity at the time of churning.

At present, there are five Maharatna (Coal India, IOC, ONGC, SAIL and NTPC), 16 Navratnas (BHEL, HPCL, NMDC, Power Finance and Shipping Corporation, besides others) and 68 Miniratnas (MOIL, Engineer India, MRPL and MMTC, besides others).

The then Finance Minister, Mr Pranab Mukheerjee, while announcing the Budget for 2012-13, had said, "To encourage flow of savings in financial instruments and improve the depth of domestic capital market, it is proposed to introduce a new scheme called Rajiv Gandhi Equity Savings Scheme.

"The scheme would allow for income tax deduction of 50 per cent to new retail investors, who invest up to Rs 50,000 directly in equities and whose annual income is below Rs 10 lakh".

Source: http://www.thehindubusinessline.com/markets/article3658488.ece

Wednesday, July 18, 2012

You may have to shell out 0.55% more to buy MF units

Mutual funds may become a tad more expensive for investors. A committee appointed by the Securities and Exchange Board of India (Sebi) has recommended raising the total expense ratio - charged by mutual funds to manage and operate schemes - and excluding service tax from this fee.

The 14-member mutual fund advisory committee (MFAC), which met on Tuesday, has also suggested to the Sebi board to allow greater flexibility for mutual funds to use the expense ratio, which includes management fees, administrative fees, and other operating costs, said four people familiar with the matter.

The proposal to raise the expense ratio, if approved by Sebi, could result in unitholders shelling out almost 55 basis points (0.55%) more than what they are paying now. The MFAC, in the four-hour meeting, recommended raising the expense ratio to 2.5% from 2.25%. The exclusion of the service tax of 10.3% from the expense ratio will result in investors incurring costs to the tune of another 30 basis points.

"The 0.25% increase in expense ratio will not be charged on existing equity assets - but only on incremental equity investments," said a person, who attended the meeting.

MFAC, headed by former SBI chairman Janki Ballabh, debated on various issues including entry load roll-back, implementation of single cheque system and raising the net worth of AMCs. MFAC members have decided to not push for a roll- back of entry load.

Mutual funds will be able to manage expenses better if Sebi allows them flexibility to use the expense ratio. At present, mutual funds are allowed to charge up to 2.25% (in funds with assets in excess of Rs 100 crore) as expense ratio. Out of the 2.25% charged as expense ratio, fund houses are allowed to accept only 1% as asset management charges; the remaining 1.25% has to be mandatorily used to meet recurring expenses, which include payment of annual trail fees, auditor & registrar charges and dealing charges to empanelled brokers.

MFAC has asked Sebi to retain the slab system of calculating the expense ratio. Under the slab system, mutual funds with a lower asset base are allowed to charge a higher slab-rate while funds with a higher base are mandated to charge a lower expense ratio. So, a fund with asset base lower than Rs 100 crore will be able to charge 2.5% as expense ratio while funds with assets in excess of Rs 700 crore will only be allowed to charge 1.75% as expense ratio. Smaller mutual funds had protested against their larger peers' demand to remove the slab system. MFAC has voted against the proposal to increase the net worth criteria for setting up MF business. The committee has decided to retain minimum capital requirement for starting an asset management company at Rs 10 crore. The proposal to increase capital base of AMCs from Rs 10 crore to Rs 50 crore was first introduced by Sebi committee on 'Review of Eligibility Norm' in 2010 to ward off non-serious players.

The decision to maintain status quo on net-worth requirement will come as a breather to smaller fund houses. Higher capital base would have meant more capital infusion by trustee companies or promoter groups intending to start fund management business.

The committee also expressed concerns over the concentrated exposure of debt funds to NBFC papers. ET, in its February 7 edition, had reported that fund industry has more than Rs 50,000 crore worth of investments in short- and medium-term NBFC issuances.

Source: http://economictimes.indiatimes.com/markets/regulation/you-may-have-to-shell-out-0-55-more-to-buy-mf-units/articleshow/15025211.cms?curpg=2

Tuesday, July 17, 2012

Not the right time to invest in mid-cap stocks: Sanjay Dongre

Despite volatility and macro-economic headwinds, Sanjay Dongre, senior vice-president and fund manager, UTI Mutual Fund, tells Puneet Wadhwa he has increased exposure to interest rate-sensitive sectors and expects the cement and infrastructure spaces to do well in the medium-term. Edited excerpts:

With the results season kicking off and the coming review of the monetary policy, do you think global cues could play second fiddle to domestic factors for a while?
I think both domestic as well as global factors are equally important from the Indian stock market's point of view. Domestic factors, such as monetary policy review by the Reserve Bank of India (RBI) and measures to reduce fiscal deficit, will determine extent and timing of growth recovery in the Indian economy.

On the other hand, recessionary conditions in advanced countries may impact the exports growth prospects. Any large scale financial instability in the US/Euro region may lead to financial crisis in the global economy and may impact the risk appetite (risk 'on' or risk 'off') for capital flows into the country in the short to medium term. It could have large bearing on the growth trajectory of the Indian economy in the medium term.

What are your expectations from the June quarter results season? Do you think inflation, the rupee and crude oil movement can severely dent corporate earnings over the next few quarters?
Earnings for the April-June quarter will not be significantly different from the recent quarters. While the revenue growth is likely to be in double digits, the margin pressure will continue to impact the overall earnings. I expect the earnings growth of the Sensex companies to be in low single digit.

We will continue to see consumption-driven sectors, such as FMCG (fast-moving consumer goods) and pharmaceuticals, do well in the recently concluded quarter, but infrastructure, power, capital goods and oil and gas would continue to struggle. For these sectors to do well, interest rates have to soften more to kick-start the investment cycle in the economy.

Rupee depreciation may benefit the export-oriented sectors like software and pharmaceuticals, while it may impact sectors like capital goods due to net import status. Telecom and infrastructure sectors will also get impacted due to the rupee's depreciation.

The markets world over have swung between bouts of hope, optimism and pessimism in the first half of the current calendar year. What has been your investment strategy in such an environment? What returns have you been able to generate in the schemes you manage?
In the last six-nine months, it was very evident that interest rates in India have peaked. Crude oil prices have declined 20 per cent from the top and most of the commodities have witnessed a drop of at least 10 per cent in the last six months.

Against the background, we have been following the strategy of reducing the exposure to defensives and have increased exposure to the interest rate-sensitive sectors. This strategy has worked very well in the last six months. Our diversified funds performed very well and have beaten the benchmark indices in the last one year.

Do you think it is a good time to bet on the mid-cap space? Can you suggest a few themes / sectors from this space that could do well, going ahead?
Mid-caps are most vulnerable in high inflation, high interest rates and a slower growth environment. Hence, it may not be a good time to bet on the mid-cap space. Investors can look at this space once RBI cuts interest rates by 100-150 basis points cumulatively.

A lot of news has been flowing in regarding the off-beat sectors like sugar and telecom. Do you think the tide is turning for these sectors? How should investors approach them?
In the sugar sector, production has exceeded demand in the last three years, resulting in accretion to the inventory levels. Hence, sugar prices are unlikely to run away in the short term. With elevated levels of sugar cane prices, the profitability of sugar companies may continue to remain under pressure.

The telecom sector has been undergoing serious challenges and regulatory uncertainty may continue to impact the valuations of the telecom sector. Steep spectrum prices may lead to cost escalation, both on the capex and opex front, thereby impacting the profitability of the sector significantly. However, another 10 per cent fall could make the stocks attractive as most of the negatives would be priced in.

What about the infrastructure sector given the outlook for interest rates?
With expectations of decline in interest rates, going forward, this space looks attractive from a medium-term perspective.

What about the cement, textiles and fertiliser sectors? Are they a good contrarian bet in this environment?
The demand-supply gap may narrow down significantly in the next 18-24 months in the cement sector. Setting up a greenfield capacity is becoming difficult on account of land acquisition, limestone mines and environmental issues. Thus, the cement sector is an attractive opportunity from a medium-term perspective.

Though the rupee depreciation may benefit the textile sector, the slowdown in key markets like the US and European Union may continue to put pressure on the revenue and profit growth of the textile sector.

As regards the fertiliser space, players expect key reforms, especially in the area of urea pricing, which once undertaken, would be beneficial to urea manufacturers.

Source: http://www.business-standard.com/india/news/notright-time-to-invest-in-mid-cap-stocks-sanjay-dongre/480602/